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The Dividend Yield measures the potential return (in dividends) that an investor might get when purchasing shares at a market rate.

For example, an investor buys 100 shares at a market price of $2 each. The company in question paid a dividend of 20 cents (to all shareholders) in the last reported financial.

In order to calculate the dividend yield, we must divide the dividend per share by the cost of one share:

 Dividend Yield (%) = (Dividend per Share / Market rate per share) x 100

In our example we can therefore calculate the dividend yield as follows: (0.20 / 2) * 100 = 10%. The dividend his yield 10%!

Note that the current share price is used in the calculation. This means that the dividend yield will vary as the cost of a share goes up or down.